El Chapo knew when to shift his business

Sunday

On a warm Saturday night in 2008, Pedro Flores was angling for a deal.

The biggest drug kingpin in Mexico was happy to oblige.

After his 2001 escape from a Mexican prison, El Chapo — Joaquin Guzman-Loera — had overseen the Sinaloa drug cartel’s shift to heroin.

The cartel was still in the cocaine and pot business. By 2008, though, El Chapo was bragging on the quality of his heroin.

The powder he agreed to sell Flores was more than 90 percent pure.

It was a far cry from the dark, tar-like heroin that for decades Mexican cartels sold west of the Mississippi. Under El Chapo, Sinaloa poppies were being refined in a new way, yielding a light-colored heroin more like the white South American version favored by East Coast users.

For years, South America had dominated heroin sales east of the Mississippi.

El Chapo would push to change that, too.

Poppies for pot

Flores, along with his twin brother, Margarito, were Chicago natives and heroin middlemen orchestrating the movement of Sinaloa heroin and cocaine to street dealers. Just as Sears once used Chicago as a transportation hub to send products across the country, El Chapo and the Flores twins found the city, with its network of roads heading east and west, to be perfectly situated to move their product.

By the night Flores called, though, Hurricane Norbert had swept through northwestern Mexico, playing havoc with El Chapo’s strategy.

Only weeks earlier, the storm had flooded wide swaths of the region, dumping rain on a bumper crop of poppies.

Poppies don’t like wet soil. Even growing in tiny plots high on the mountain sides of the Sierra Madre, the plants would have been drenched, if not by Norbert, then by a nearby tropical storm that preceded it.

But El Chapo apparently felt confident enough in his ability to deliver heroin that he was willing to give Flores a price break — $50,000 for 44 pounds, down from $55,000, and a deal to provide 88 pounds a month after that.

In fact, so many poppies were in the ground that despite the torrential rain, Mexican heroin production was in little danger. Estimates of illegal crops always have an element of uncertainty, but a United Nations report estimated 2008 poppy acreage in Mexico had surged by 455 percent in six years.

‘They understand addiction’

El Chapo’s Sinaloa cartel brought in farmers from Colombia, long the source of East Coast heroin, to master the science and art of creating a whiter, powdery, pure heroin, said Jack Riley, the dogged, ex-DEA deputy administrator charged with bringing El Chapo to justice in 2016.

Riley, who spent years pursuing the drug kingpin — and who El Chapo once plotted to behead — knows El Chapo and Sinaloa’s business model well. He has no doubt that El Chapo and his advisers knew early on that the nation’s growing thirst for the prescription opioid rush from oxycodone would translate to a thirst for the opioid rush of heroin.

“One of the things you have to understand about Sinaloa is that it has probably the best-financed research and development component of any corporation,” said Riley.

More crucially, said Riley: “They understand addiction.”

Even so, in 2008, it looked as though El Chapo was playing a losing bet.

There were signs that fewer people were using heroin. The number of U.S. deaths involving heroin either dropped that year or were small: 14 or fewer in 25 states. Between 2005 and 2008, admissions to publicly financed treatment centers for people seeking to kick heroin fell in the middle Atlantic region and were flat in New England, hotbeds of heroin trafficking.

In Florida, heroin-related deaths were down by half since 2001 and heading for a 10-year low.

But Florida heroin deaths were down for a reason, and in 2003, Jim McDonough, then Gov. Jeb Bush’s drug czar, had been among the first to see it.

Both heroin and oxycodone, the primary ingredient in prescription OxyContin, are opioids. Both are derived from poppies. Both pack a powerful rush. Both are highly addictive.

Heroin-related deaths unexpectedly dropped in Florida, McDonough told reporters, because “addicts have moved rapidly to illicit use of prescription drugs.”

OxyContin and oxycodone, which packed a heroin-like high, would become favorites.

But this heroin-to-oxycodone shift could work just as well in reverse when oxycodone became too expensive, or too hard to find.

That’s precisely what happened beginning in 2011, when Florida, for years the source of illicit oxycodone to roughly half the nation, abruptly cracked down. Pill mills shuttered. Oxycodone became both scarce and pricey. Addicts scrambled for a substitute opioid.

And El Chapo and his team were already on the streets with a cheaper, potent alternative.

“I think the bones for what we are seeing is quite simple,” Riley said of the drug kingpin’s heroin strategy. “He has some people who advise him, and they said, ‘Here is just what is going to happen.’

Unheeded warnings

El Chapo didn’t have to figure it out by himself.

The DEA had alerted drug traffickers — and anyone else who would listen — for years.

As early as 2001, the year El Chapo escaped one of Mexico’s toughest prisons, the Department of Justice’s National Drug Intelligence Center warned that prescription OxyContin users might switch to heroin if their insurance ran out.

The shift was already happening in pockets of West Virginia, said the report’s authors. The same shift was happening in Boston, where every treatment bed at the Cushing House treatment center was taken up by teens who had moved to heroin from OxyContin.

Seven years later, the DEA was still waving a red flag. Treatment centers across the country reported an uptick in heroin addiction among former users of OxyContin and similar opioids. And, they warned, “Once an individual switches from prescription opiates to heroin, he or she rarely switches back.”

If El Chapo and his lieutenants were paying attention, others weren’t. Lawmakers, regulators and the medical community still were arguing over how — and whether — oxycodone prescriptions could be reined in. Few paid attention to what the drug kingpin and the law enforcement agency trying to stop him clearly saw: the seeds of a future heroin epidemic had already been planted in the oxycodone epidemic.

“Mexico tracks these trends just as epidemiologists do; they just do it for a different reason,” said Mark Parrino, president of the American Association for the Treatment of Opioid Dependence, a Washington policy and advocacy group. “They read, too.”

Price and purity

In fact, cartels are known to scrutinize trends and act quickly to exploit them. For example, widely regarded Nova Southeastern University substance abuse epidemiologist James Hall points out that when the dollar fell against the euro, South American cartels began selling their cocaine in Europe, where they could take advantage of the currency shift.

They migrated back to American markets after the dollar strengthened.

El Chapo, whose $3 billion business was run with the efficiency of a Fortune 500 company, was banking on a more basic economic law: supply and demand.

In 2008, when El Chapo and Flores were negotiating heroin price, an estimated 6,000 Americans a day took a prescription drug illegally for the first time.

The same year, the purity of Mexican heroin hit 40 percent, a three-year high. Caribbean middlemen ferried an unknown amount to docks, ports and beaches between Palm Beach and Miami, where it would be available in the very heart of the nation’s pill mill scourge.

“Where pill mill customers quickly make the transition, it was because heroin was readily available through a whole new marketing strategy,” said Hall. “The heroin epidemic is very much based on increased availability and the lower price.”

By the time Florida began its long-delayed oxycodone crackdown, Mexican heroin could be had for an average $1.35 per pure milligram, a 32 percent price drop from the previous year. In Miami, the purity of South American heroin tested by the DEA doubled the year of the crackdown, even as prices fell by 62 percent.

And a strong, new heroin was appearing.

Dubbed Mexican white, the potent heroin was as strong or stronger than South American heroin, and much cheaper. By 2013, the price per pure milligram was as little as 50 cents in some cities.

Targeting oxy users

U.S. gangs, the street distribution backbone of Mexican drug cartels, appeared to be focusing heroin sales in regions where oxycodone and prescription opioid abuse was known to be raging, Riley said.

In Huntington, W.Va., where illicit Florida pill mill oxycodone swept through the town, “There was even a bait and switch happening with the drug dealers,” said Mayor Steve Williams.

“Someone would come to buy pills, only to be told, ‘We don’t have pills, but we have this’” — heroin.

El Chapo and the Sinaloa cartel were hardly alone in pushing Mexican heroin into the country. The Beltran-Leyva, Tijuana and Juarez cartels as well as Los Zeta were players, too.

But under El Chapo’s leadership, Sinaloa heroin spread through the regions where prescription pill users and traffickers getting pills from Florida were abruptly forced to find another opioid.

In 2011, the year Florida turned off the pill mill spigot, Sinaloa heroin was selling in Florida, New England, New York, New Jersey, the mid-Atlantic, the Southeast and the Great Lakes states: every region where Florida-supplied oxycodone had flowed but was now disappearing.

In 2012, the year after Florida’s crackdown, heroin-related deaths rose in all of those regions.

The Juarez and Tijuana cartels sold heroin through gangs in the same regions. But they used no more than three gangs each.

Sinaloa used seven.

A new way to die

In 2013, the DEA formally acknowledged the existence of Mexican white, which had previously been classified as an unknown form of the drug. In Florida, it was found in Miami and Orlando.

In 2015, Sinaloa heroin dominated West Palm Beach and Orlando and much of Tampa and Miami. It was sold as far north as Minneapolis and as far east as Philadelphia.

In 2016, El Chapo was arrested after his second prison escape.

Jailed, he had reason to rue the phone call six years earlier with Pedro Flores.

The Flores brothers had abandoned their thriving drug enterprise. For roughly eight weeks in late 2008, they helped the feds. They offered up names.

They recorded phone calls.

One took place on the November Saturday night when Pedro Flores persuaded El Chapo to give him a price break on heroin shipments.

Considered the single most damning of all the recorded calls, it is now evidence in the drug kingpin’s upcoming New York trial.

Reporter Lawrence Mower contributed to this story.

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